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What the Items of a Bank 
Statement Mean 



Guaranty Trust Company 
of New York 



What the Items of a Bank 
Statement Mean 



By STUART H. PATTERSON 

Comptroller, Guaranty Trust Company of New York 



Guaranty Trust Company of New York 
140 Broadway 

FIFTH AVENUE OFFICE MADISON AVENUE OFFICE 

Fifth Avenue and 44th Street Madison Avenue and 60th Street 

GRAND STREET OFFICE 
268 Grand Street 

LONDON LIVERPOOL PARIS HAVRE 

BRUSSELS CONSTANTINOPLE 



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COPYRIGHT, 1920 
BY GUARANTY TRUST COMPANY OF NEW YORK 



What the Items of a Bank 
Statement Mean 

NATIONAL BANKS are required to pub- 
lish financial statements five times a 
year, and in many States such statements 
must be published by State Banks and Trust 
Companies as often as four times a year. Al- 
though bank statements, in detail, are pub- 
lished in certain officially designated news- 
papers, the customary form of publication is 
a condensed statement, of which the following 
statement of Guaranty Trust Company of 
New York as of September 30, 1920, is 
typical: 

RESOURCES 

Cash — On Hand and in Banks $111,306,421.14 

Exchanges for Clearing House 70,921,949.74 

Loans and Bills Purchased 521,477,002.28 

U. S. Government Bonds and Cer- 
tificates 33,262,404.09 

Public Securities 30,405,706.50 

Other Securities 45,154,659.21 

Bonds and Mortgages 2,335,950.00 

Foreign Exchange 21,446,069.24 

Credits Granted on Acceptances 63,684,741.70 

Real Estate 8,529,075.37 

Accrued Interest and Accounts Re- 
ceivable 12,281,276.95 

$920,805,256.22 

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LIABILITIES 

Capital $25,000,000.00 

Surplus Fund 25,000,000.00 

Undivided Profits 10,754,227.55 

$60,754,227.55 
Notes and Bills Rediscounted with 

Federal Reserve Bank 19,050,000.00 

Notes Secured by Liberty Bonds Re- 
discounted with Federal Reserve 

Bank 24,917,200.22 

Due Federal Reserve Bank against 

U. S. Government Obligations 5,000,000.00 

Outstanding Dividend Checks 1,043,540.50 

Outstanding Treasurer's Checks 30,617,242.94 

Sundry Foreign Accounts 14,195,250.19 

Acceptances— New York Office 49,974,979.70 

Foreign Offices 13,709,762.00 

Accrued Interest Payable and Reserves 

for Taxes, Expenses, etc 8,982,767.52 

Deposits 692,560,285.60 

$920,805,256.22 



Capital, Surplus, Undivided Profits 

In any financial statement the "Resources " 
give a description and valuation of the assets 
available for meeting liabilities. The fact 
that the total of the liabilities is exactly 
equal to the total resources is due to the fact 
that the excess of resources over liabilities to 
various creditors and depositors, consisting of 
Capital, Surplus and Undivided Profits, be- 
longs to the stockholders, and, therefore, is 
shown on the statement as a liability, thus 
equalizing both sides. 

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To Meet Liabilities 

In the case of liquidation, however, stock- 
holders do not receive anything until all other 
liabilities have been paid in full. Under Fed- 
eral law, and the banking laws of most States, 
stockholders of banks and trust companies 
are also liable to an additional assessment, if 
necessary to meet liabilities, equal to the par 
value of their stock. In the foregoing state- 
ment the stockholders' investment is $60,- 
754,227.55, and as their additional liability, 
equal to the par value of the capital stock, is 
$25,000,000, there is a protection for deposi- 
tors and other creditors equivalent to $85,754,- 
227.55. In other words, all assets could be 
liquidated for that much less than the valua- 
tions shown on the statement, and there 
would still be sufficient to pay all depositors 
and creditors in full. 

Additional Protection 

Bank depositors, however, are usually 
further protected by conservative institu- 
tions carrying bank buildings and real estate 
at cost, or less than cost, even though the 
market value may have increased materially, 
and in writing off the cost of furniture and 
fixtures to Profit and Loss or Expense, also in 
creating reserves for possible bad debts or 
decrease of value of investments in securities 
through market fluctuations. This policy 

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naturally creates dormant reserves, which, in 
case of liquidation, should make the assets 
realize more than is shown on the statement. 
The deposits of a commercial bank are sub- 
ject to check, and, to enable it to meet current 
demands, a certain amount must be kept in 
the form of cash, and its investments should 
be of the self-liquidating kind and of short 
maturity. 

Total Cash Position 

It will be noted from the statement that 
"Cash — On hand and in Banks," the lat- 
ter being subject to check, amounts to 
$111,306,421.14, and "Exchanges for Clearing 
House," representing checks which will be 
settled through the Clearing House the fol- 
lowing morning, amount to $70,921,949.74 
or a total cash position of $182,228,370.88. 
This is much more than sufficient to meet the 
daily demands of depositors having total de- 
posits of $692,560,285.60, but, under Federal 
and State laws, bankers are required to keep 
a certain minimum cash reserve on hand or 
with banks. 

Funds for Meeting Demands 

The largest single item of investment repre- 
sents "Loans and Bills Purchased," amount- 
ing to $521,477,002.28. Such loans and bills 
are usually for demand or of 90 days' dura- 

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tion or less, and, as loans are being made daily, 
there are daily maturities which supply the 
bank with funds for meeting demands against 
it, or for making new loans. As far as possible, 
the loans are made eligible for rediscount at 
the Federal Reserve Bank. 

United States Obligations 

The banks of the country were a most im- 
portant factor in war financing, both in pur- 
chasing United States Government Bonds and 
Certificates for their own account and in lend- 
ing to customers money with which to pur- 
chase Government bonds. The $33,262,404.09 
United States obligations shown in the state- 
ment represent the portion held by the Com- 
pany and are used principally for capital 
investment purposes. It is also customary 
to carry some of the bank funds in other 
investment securities to diversify the resources 
and produce a more even rate of earnings 
under varying conditions. 

Investment in Securities 

Many banks have well-equipped bond de- 
partments which do an investment banking 
business and when such a department is 
maintained the amount invested in securities 
is, of course, much larger than in the case of a 
bank doing a purely commercial business. 
In the statement shown the total investment 

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in securities is $108,822,769.80. Some of 
these are short-term notes, while others are 
long-term bonds, but high grade securities are 
always readily marketable and can be realized 
upon in a comparatively short time if funds 
are required for other purposes. "Bonds and 
Mortgages/' representing loans on real estate, 
usually are not carried in large amounts by 
banks doing a commercial business. 

Foreign Exchange 

"Foreign Exchange" of $21,446,069.24 in 
the statement is principally items in transit 
representing drafts, bills of exchange, etc., 
which have been pin-chased in the ordinary 
course of business. A bank doing an inter- 
national business is called upon by its bank 
and other depositors for funds to make pay- 
ments abroad, and such funds are principally 
acquired by purchasing from exporters the 
bills that they draw against shipments abroad. 

Credit Granted On Acceptances 

The Resources side of the statement shows 
"Credit Granted on Acceptances," $63,684,- 
741.70, and it will be noted that the total of 
"Acceptances" on the liability side is exactly 
the same amount. When a bank accepts a 
draft drawn upon it in connection with a 
Commercial Letter of Credit, or otherwise, it 
assumes a liability to honor the acceptance at 

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maturity, thus creating a liability which must 
appear in the statement, while, against this 
liability, the bank holds the obligations of its 
customers to provide the funds at maturity, 
and this obligation of the bank's customers 
appears in the statement under the caption 
"Credit Granted on Acceptances." Other 
liabilities of the bank in connection with inter- 
national transactions are reported under 
"Sundry Foreign Accounts," as in the state- 
ment shown $14,195,250.19. 

Rediscounts with Federal Reserve Bank 

Prior to the enactment of the Federal Re- 
serve law, the means of securing credit be- 
yond a given point were very much restricted 
and consequently required a much greater 
cash reserve to provide against contingencies. 
Under the present law the cash reserves are 
lower and a bank can rediscount eligible notes 
and bills of its customers with the Federal 
Reserve Bank, thereby providing greater 
elasticity in time of need and releasing for 
circulation a large amount of cash which was 
previously locked up to meet contingencies 
which might arise. As rediscounting is sub- 
ject to the restrictions contained in the Fed- 
eral Reserve Act, and regulations promul- 
gated by the Federal Reserve Board, there are 
limitations, consistent with safe and conserva- 
tive banking, on the use that can be made of 

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these rediscount facilities. In this statement 
rediscounts total $43,967,200.22 or only 
slightly more than 8% of the total of "Loans 
and Bills Purchased," while of the amount 
borrowed $24,917,200.22 represent rediscount 
of loans made, to customers carrying Liberty 
Loan Bonds. 

Outstanding Dividend and 
Treasurers 9 Checks 

Outstanding Dividend Checks of $1,043,- 
540.50 represent dividend checks of the Com- 
pany payable on September 30th not yet been 
presented for payment; and "Outstanding 
Treasurer's Checks" of $30,617,242.94 repre- 
sent checks on the Company that have been 
issued to customers who desire to make remit- 
tances in that manner, checks issued for the 
proceeds of loans, and those issued in payment 
of company liabilities and expenses. 

Accrued Interest and 
Accounts Receivable 

In order to show a true statement of con- 
dition at any time, it is necessary to accrue 
interest, expenses, taxes, etc., as of the date 
of the statement. "Accrued Interest and 
Accounts Receivable" are shown in the 
Resources side of the statement as $12,281,- 
276.95, and "Accrued Interest Payable and 
Reserves for Taxes, Expenses, Etc." on the 

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Liabilities side as $8,982,767.52. In other 
words, resources accrued to the date of the 
statement, but not collected, exceed accrued 
liabilities by $3,298,509.43. 

Deposits 

The largest single item in the liabilities of 
any bank is, of course, "Deposits," which in 
this statement are shown as $692,560,285.60, 
and which represent both time and demand 
deposits, trust funds, deposits, etc. The 
amount of reserve held against time deposits 
is less than that held for demand deposits 
and, consequently, money on time permits of 
a higher rate of interest to the depositor. 

Foundations of Strongest Banks 

Bank statements show the financial condi- 
tion of the bank at any given date, but a com- 
parison with previous statements is necessary 
to ascertain the progress that is being made. 
In addition to examining statements of his 
bank, however, a depositor should inquire 
into its administration, its management, and 
the service that it renders. Sound policies, a 
broad vision of modern financial needs, effi- 
cient management, and facilities for serving 
its depositors in their financial affairs are the 
foundations on which the strongest banks are 
built. 

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LIBRARY OF CONGRE SS % j 

027 331 569 A 



